Asia's rapid accumulation of debt in recent years is holding back central banks from easing monetary policy to fight the risk of deflation, endangering private investment needed to boost faltering growth, according to Morgan Stanley. Debt to gross domestic product ratio in the region excluding Japan rose to 203 per cent in 2013 from 147 per cent in 2007, with most of the increase led by companies, analysts in Hong Kong wrote in a report. The ratio is close to or has exceeded 200 per cent in seven of 10 nations including China and South Korea, they said. Deflation risk is spreading from Europe to Asia as oil prices plunge, raising the spectre of companies and consumers postponing spending and threatening global economic recovery. Asia could take its cue from the United States where a policy of keeping real rates low after the 2008-2009 global financial crisis encouraged private-sector investment and boosted productive growth, Morgan Stanley said. "When real rates are high, only the public sector or government-linked companies will take on leverage," the economists wrote. The key concern with an approach of keeping real rates at elevated levels is that the private sector will continue to be hesitant to take up new investment, the report said. Asia's policy makers are balancing the need to support domestic demand and curbing debt and asset bubbles. While China cut its one-year lending rate in November, its policymakers have held off on broader easing measures as they sought to avoid exacerbating a build-up in non-performing loans. India, South Korea, Indonesia, Thailand and the Philippines all held their benchmark rates last month. The Asian Development Bank in December cut the region's economic growth forecasts for 2014 and 2015. Oil's decline to the lowest in more than 51/2 years has hurt crude-exporting Asian nations like Malaysia while benefiting others like the Philippines and Indonesia. Malaysia's ringgit slumped to the lowest level in more than five years while the Philippines, which imports almost all its oil, sold US$2 billion of 25-year debt at a record-low yield last week. With oil slumping, Singapore's consumer prices fell in November from a year earlier for the first time since 2009, while price gains in Thailand eased to the slowest pace in December in more than five years. To allay concerns on leverage, China could tighten rules to allow faster recognition of non-performing debt in the corporate sector, Morgan Stanley said. While this could lead to a period of sharper slowdown in credit and GDP growth, it will reduce risks and open up the door for aggressive monetary as well as fiscal easing, it said. In Korea and Thailand, policymakers could tighten regulations on the household sector to prevent excessive borrowing, and cut rates to ensure that good borrowers are not discouraged, Morgan Stanley said.